First-time buyers warned on staying out of market
FIRST-TIME buyers who are holding back from the market in the expectation that property prices will fall further could end up paying more as interest rates rise, a group of independent mortgage and insurance brokers said yesterday.
The director of mortgage services for the Professional Insurance Brokers Association (PIBA), Rachel Doyle, claimed that first-time buyers could get hit by higher interest rates if they decide to stay away from the market.
"The issue for those wishing to get on to the property ladder is that while property prices have not bottomed out yet, by the time they do, longer-term fixed rates, such as the 4.39pc current five-year fixed, may no longer exist," she said.
"Therefore, there is a risk that by waiting for a further drop in property prices you could lose more than the value of the drop in the higher interest rate you are likely to have to pay," she added.
According to Ms Doyle, only 16pc of mortgage holders are on fixed rates at a time when she believes that there are still good value longer-term fixed rates available.
"Newer mortgage holders who are on variable rates and those wishing to get on to the property ladder, should examine their financial situation very carefully and plan prudently for at least a five-year perspective," she stressed.
"The fixed rates are, like the variable rates, on the way up so there is still time, but not much."
Other market sources, however, say fixed rates are bad value since they price in a level of increase in base mortgage rates that may be higher than the actual increase, which is likely to be muted by the flagging economic recovery.
PIBA believes that many young people are being declined for a mortgage, even though they have a solid credit record.
"Most lenders have tightened their criteria and are now requiring a deposit of up to 20pc and a strong savings history," said Ms Doyle. "It is difficult for any young person to acquire such a deposit, especially in the current economic climate. The next few years could be very difficult for first-time buyers," she said.
Most of the banks have raised interest rates this year, with AIB increasing their three-year fixed rate by 24bps in August.